Why Hooker Furniture Should be a Small Cap Portfolio Fixture
The furniture industry has been one of the most interesting beneficiaries of the pandemic economy and Virginia-based Hooker Furniture (NASDAQ:HOFT) is no exception.
The furniture industry has been one of the most interesting beneficiaries of the pandemic economy and Virginia-based Hooker Furniture (NASDAQ:HOFT) is no exception. The stock went on an eight-month winning streak to close out 2020 and has since showed little sign of slowing down.
Americans have been spending more time at home during COVID-19 so it only makes sense that spending on home furnishings has been in style. In the process, Hooker Furniture has gathered a larger customer base and strengthened its digital platform in anticipation that the current industry trends have staying power.
Let's have a seat and review how this nearly 100-year-old furniture company has polished its financial performance—and where its stock may be headed next.
How Did Hooker Furniture Perform in Q4 of Fiscal 2021?
In the fourth quarter of fiscal 2020 sales dipped to $104.6 million, and Hooker Furniture swung to a net loss amid weak demand, competitive pressures, and rising costs. The makeover since then has been nothing short of remarkable.
The company has a reupholstered financial position after recording sequential revenue growth in each of the last four quarters and returning to profitability. Net income rose 22% to $8.5 million in the quarter ended January 31st, 2021. Earnings per share (EPS) of $0.71 fell short of the $0.75 consensus estimate and that is largely why the stock has pulled back a bit.
Revenue of $155.3 million was 6% below the prior year quarter due to a sharp sales decline in the Home Meridian segment where global supply chain constraints inhibited Hooker's ability to fulfill orders. But more importantly, orders were strong in not only the Home Meridian business but Hooker's other two segments as well. Its in-house branded product sales were up 25% and Domestic Upholstery sales increased 6% in the period.
The company ended the year with nearly 6% more orders than in fiscal 2020 which speaks to the elevated demand for home and home office furnishings in recent months. What's even more telling is that the backlog was more than twice what it was a year ago.
Hooker Furniture's second half results contrasted dramatically with those of the first half when COVID-19 caused a sharp downturn in the domestic furniture industry. From June 2020 on, the company witnessed record high demand and backlogs that it feels will persist well into the new fiscal year. As supply chain issues lessen, shipments will rise, and Hooker's financial results will start to reflect its strong backlog.
What are Hooker Furniture's Growth Prospects?
Hooker Furniture manufactures its own leather and fabric furniture in addition to importing furniture from overseas. Its focus is providing home furnishings and accessories for the residential market including dining room sets, bedroom furniture, and home entertainment pieces. Like most retailers of any kind, the pandemic has prompted spending on technology which for Hooker has meant improving its e-commerce capabilities and offering showroom tours via video. It has just scratched the tabletop in building out its digital sales channels.
Lately, the home has doubled as the office for many U.S. workers, leading to strong demand for Hooker's home office furnishings. Even as pandemic conditions improve, this demand isn't expected to subside. Owl Labs latest 'State of Remote Work' survey recently reported that in the post-COVID world, 80% of full-time workers expect to work from home at least three times a week. One in two people surveyed said they wouldn't return to jobs that don't offer remote work. This suggests that furniture companies that have a strong home office portfolio like Hooker Furniture will continue to ride the work from home trend for years to come.
The runway for growth is also long overseas. Hooker's international sales accounted for less than 2% of overall sales last year but increased nearly 20% from 2019. To find another leg of growth in the highly competitive global furniture industry, the company will have to expand into non-U.S. markets as many peers have.
Is it a Good Time to Buy Hooker Furniture Stock?
Hooker Furniture is one of the country's top five publicly traded furniture companies, but it is also among the smallest. Its smaller stature and solid balance sheet could make it nimbler when it comes to pursuing growth opportunities and it is therefore an attractive pure play on home and home office furniture demand.
It also has unique exposure to the aging population theme as a contracted furniture supplier to senior and assisted living facilities like Brookdale Senior Living and Sunrise. And as the hospitality industry heals, Hooker's position as a supplier to a range of four- and five-star hotels will help stabilize revenues.
The technicals also look favorable. Although the stock declined in heavy volume in the session prior to the after-hours earnings report, volume has slowed significantly suggesting the selloff may be winding down. The April 15th red candlestick is resting on the lower Bollinger band which has repeatedly provided support over the past 12 months.
As selling pressure eases, look for Hooker to bounce back and resume the uptrend that began back in May 2020. The stock deserves to be a fixture in a small-cap core portfolio based on its growth profile, 2% dividend yield, and reasonable valuation. At 13x FY22 earnings and 11x FY23 earnings, Hooker Furniture is a comfortable buy at current levels.
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